Schafer: Twitter IPO v. Facebook IPO too close to call

It’s hard to know whether the initial public offerings of Twitter or Facebook had been the more poorly managed deal.

It’s a tough call. One was set up to maximize proceeds to the company and the other apparently planned for there to be a big pop in value on the opening trade. Neither was the perfect IPO.

The perfect IPO is one that comes at a fair price. What’s fair? A good indication is when the price of the stock the morning after the offering opens up maybe 15 percent from the IPO price and then sticks at that valuation, not one that shoots up 73 percent as Twitter’s did on Thursday. By that measure Facebook’s was even closer to the mark.

That’s not the way it’s been playing, as Friday Twitter seems happy and in the days following Facebook’s 2012 IPO its leaders were anything but, having apparently bungled its deal.

Remember how Facebook co-founder Mark Zuckerberg wore a hoodie to an early roadshow meeting, an act investors correctly understood as a mark of immaturity? With strong projected demand for shares, the company increased the offering by 25 percent. Then the expected price kept inching up. The deal finally came at $38.00 per share.

It wasn’t that long after the offering before it had fallen by more than half.

So Twitter’s was going to be the anti-Facebook deal, planning to trade on the New York stock exchange rather than Nasdaq and seeking to not overprice its shares.

The result was a 73 percent pop on day one, from $26.00 per share in the offering to open at $45.10 per share when trading began.

It’s not fair to say that the investment bankers mishandled that deal, as it’s the company with the final say on price. The bankers work for management.

But the bankers could be held accountable for knowing what the fair price was, and there is a traditional way of discovering the fair price. It’s the book.

Goldman Sachs & Co. was called the “book runner” on that Twitter deal because it was keeping track of the indications of interest that came from potential buyers of the stock. It’s bankers should have had a great sense, when went into the pricing meeting, about what the fair value should be.

Instead, a lot of money that could have gone in to the company’s checkbook (and rewarding its earliest investors) instead went to the privileged few who got shares allocated to them in the IPO. It’s unclear why the Twitter executive team can be so pleased about that.